Posted on 01/03/2010 8:09:36 AM PST by big black dog
According to the article, "The Federal Reserve Needs More Money," the Fed has instituted a term-deposit facility for bank reserves. The author points out that such a facility frees up reserves for the Fed to use to purchase more government securities. I agree, and here's why:
Ben Bernanke is known as "Helicopter Ben," but he might as well be known as "Sterilizer Ben." He said repeatedly that the massive Fed purchases of more dodgy securities won't cause serious inflation because they were "sterilized." Meaning, the ramp-up in reserves won't lead to an explosion in the money supply. [To be fair to the fellow, that is what happened. The excess reserves are still there.] The trick he used was an adaptation of the trick used to sterilize foreign-exchange interventions. Banks can't lend on those bloated reserves because their capital is seriously depleted, at least potentially, which made the huge expansion safe in the near term.
A term deposit facility will temporarily remove reserves from banks' hands, making it available for the Fed to purchase Treasury securities short-term without increasing the overall monetary base. It diverts reserves into the Fed's hands for the term of the deposit.
That enables the Fed to buy more securities without expansing the monetary base further - for the term of the term deposits, anyway. "Sterilizer Ben" is on the move.
“The expansion of the federal government in terms of size, cost and power over the lives of Americans didn’t start with the arrival of Comrade 0bama.”
It also didn’t start with George W. Bush.
It may not have started with GWB, but he presided over the largest expansion of government power yet seen, that is established historical FACT.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.